Calculate ‘return on agility’ to find the cloud’s real value

Grazed from InforWorld. Author: David Linthicum.

Werner Vogel, the CTO of Amazon.com, wrote a thoughtful blog last week that focuses on how to determine the true value of using its technology, looking at both total cost of ownership (TCO) and the return on agility. The blog stated that customers "struggle with how to account for the return on agility, the fact that they are now able to pursue business opportunities much faster at much lower cost points than before."

It’s good to see this kind of thinking coming from a provider. I find that many vendors are clueless about the business-agility value of their own technology. I’ve written a ton on the value of agility, in the context of both SOA and cloud computing (which are directly related)…

Here are a couple of key points:

• Agility is typically the core business value of cloud computing. TCO comes into play, but it’s usually much higher than expected when all costs are considered over the long term. As I’ve stated a few times in this blog, cloud computing is not always cost-effective when considering tactical costs alone.
• The return on agility can be calculated, and I’ve done so successfully several times. You just need to do very deep analysis on the business to understand the behaviors and metrics over time. Most people who create a business case for cloud computing — or any new technology or approaches, for that matter — don’t bother with the deeper analysis because it’s both hard and complex.

The trouble is that business agility — what we’re really talking about here — is one of those MBA terms that businesses neither understand nor have a clue as how to define in their own contexts. Those who don’t bother to figure this out are doomed to not understanding why they should, or should not, move to cloud computing.

My suggestion is that companies need to get smarter about defining this value. Otherwise, we’ll jump on any new trend in technology and chase the concept of ROI without truly knowing what’s in it for the business. After all, ROI is not merely or even mainly reduced TCO.